Bruce Williams: Interest-only mortgage is a gamble

DEAR V.S.: An interest-only mortgage is a loan on which, for a set term, the borrower pays only the interest due on the principal. The principal balance remains unchanged. Interest-only loans represent a somewhat higher risk for lenders, and therefore they carry a slightly higher interest rate. The reason most people take out interest-only mortgages is that these loans require the smallest monthly payments.

The troublesome thing about this kind of mortgage is that equity does not build unless the house rises in value, which in many markets is not happening these days. Interest-only mortgages tempt people to buy more house than they can afford and gamble on the outcome, meaning they are hoping the house will rise in value, their income will increase, etc.

DEAR BRUCE: I had a judgment against me a few years ago. Today, most of my bills are paid except for a judgment that I canít really pay. How long can it be held against me? What can I do? ó Reader, via email

DEAR READER: If the judgment has been renewed according to the laws of the state in which it was granted, it could stay with you until the day you die, with the interest meter continuing to run. Furthermore, one holder could sell it to another, who could sell it to another, with all of them making their best effort to try to collect from you.

Ignoring the judgment almost surely will not make it go away. Sooner or later, someone will pick up on it, renew it and come after you.

Your best shot is to try to negotiate with the current holder of the judgment to see if you can reach some kind of settlement in which you pay less than the amount outstanding.

Send questions to bruce@brucewilliams.com or to Smart Money, P.O. Box 7150, Hudson, Fla., 34674. Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.